Oil Service Index Oversold?

Folks who panicked and dumped their positions on Tuesday after BP conceded the “top kill” effort in the Gulf of Mexico had failed? They missed out big-time yesterday.

Consider the case of the OSX -- the Philadelphia Oil Service Index, comprising 15 companies, three of them tied directly to the spill. After an end-of-the-world 7.5% plunge on Tuesday, the OSX rallied 5.5% yesterday. Within some of the index’s components, the market action bordered on the absurd.

Halliburton, for instance, issued a statement that said, To heck with Obama and his six-month ban on deep-water drilling. We’ll just move our people and equipment to other places where they’ll be welcome.

Of course, anyone who casually follows the sector already knows Halliburton has no shortage of business. But the statement was enough to pump up HAL stock 12% in a day.

Such is life when the overall market exhibits signs of the bipolar disorder we diagnosed last week. Yes, the sector is still pretty beaten up compared to before the Deepwater Horizon disaster -- which nearly coincided with the overall market’s top in late April.

So where from here?